Microeconomics – Principles, Applications and Tools, 8e.ppt

* Copyright ?2014 Pearson Education, Inc. All rights reserved. 2-* Prepared By Brock Williams Chapter 2The Key Principlesof Economics What do we sacrifice by preserving tropical rainforests rather than mining or logging the land? Learning Objectives Apply the Principle of Opportunity Cost Apply the Marginal Principle Apply the Principle of Voluntary Exchange Apply the Principle of Diminishing Returns Apply the Real-Nominal Principle The Cost of College ● opportunity cost What you sacrifice to get something. P R I N C I P L E O F O P P O R T U N I T Y C O S T The opportunity cost of something is what you sacrifice to get it. Opportunity cost of money spent on tuition and books $ 40,000 Opportunity cost of college time (four years working for$20,000 per year) 80,000 Economic cost or total opportunity cost $120,000 2.1 THE PRINCIPLE OF OPPORTUNITY COST The Cost of the Military Spending ● opportunity cost What you sacrifice to get something. P R I N C I P L E O F O P P O R T U N I T Y C O S T The opportunity cost of something is what you sacrifice to get it. The war in Iraq will cost $1 Trillion Each $100 Billion could instead support ? Enroll 13 million preschool children in the Head Start program for one year. ? Hire 1.8 million additional teachers for one year. ? Immunize all the children in less-developed countries for the next 33 years. 2.1 THE PRINCIPLE OF OPPORTUNITY COST Opportunity Cost and the Production Possibilities Curve ● production possibilities curve A curve that shows the possible combinations of products that an economy can produce, given that its productive resources are fully employed and efficiently used. FIGURE 2.1 Scarcity and the Production Possibilities Curve The production possibilities curve illustrates the principle of opportunity cost for an entire economy. An economy has a fixed amount of resources. If these resources are fully employed, an increase in the production of wheat